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# Many managers are influenced by dangerous myths about pay

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10 Jul 2008, 01:00
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Question 1
00:00

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74% (02:43) correct 26% (01:42) wrong based on 72

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Question 2
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65% (01:22) correct 35% (00:37) wrong based on 69

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57% (01:29) correct 43% (00:52) wrong based on 69

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Question 4
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43% (01:26) correct 57% (00:50) wrong based on 67

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Question 5
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81% (03:38) correct 19% (00:19) wrong based on 64

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Many managers are influenced by dangerous myths about pay that lead to counterproductive decisions abouthow their companies compensate employees. One such myth is that labor rates, the rate per hour paid to workers, are identical with labor costs, the money spent on labor in relation to the productivity of the labor force. This myth leads to the assumption that a company can simply lower its labor osts by cutting wages. But labor costs and labor rates are not in fact the same: one company could pay its workers considerably more than another and yet have lower labor costs if that company's productivity were higher due to the talent of its workforce, the efficiency of its work processes, or other factors. The confusion of costs with rates persists partly because labor rates are a convenient target for managers who want to make an impact on their com- pany's budgets. Because labor rates are highly visible, managers can easily compare their company's rates with those of competitors. Furthermore, labor rates often appear to be a company's most malleable financial variable: cutting wages appears an easier way to control costs than such options as reconfiguring work processes or altering product design.

The myth that labor rates and labor costs are equivalent is supported by business journalists, who frequently confound the two. For example, prominent business journals often remark on the "high" cost of German labor, citing as evidence the average amount paid to German workers. The myth is also perpetuated by the compensation-consulting industry, which has its own incentives to keep such myths alive. First, although some of these consulting firms have recently broadened their practices beyond the area of compensation, their mainstay con- tinues to be advising companies on changing their compensation practices. Suggesting that a company's performance can be improved in some other way than by altering its pay system may be empirically correct but contrary to the consultants' interests. Furthermore, changes to the compensation system may appear to be simpler to implement than changes to other aspects of an organization, so managers are more likely to find such advice from consultants palatable. Finally, to the extant that changes in compensation create new problems, the consultants will continue to have work solving the problems that result from their advice.

Questions:

1. The passage suggests that the “myth” mentioned in line 5 persists partly because

A. managers find it easier to compare their companies’ labor rates with those of competitors than to compare labor costs
B. managers tend to assume that labor rates affect their companies’ budgets less than they actually do
C. managers tend to believe that labor rates can have an impact on the efficiency of their companies’ work processes
D. the average amount paid to workers differs significantly from one country to another
E. many companies fail to rely on compensation consultants when making decisions about labor rates

[Reveal] Spoiler:
A

2. The author of the passage mentions business journals (line 39) primarily in order to

A. demonstrate how a particular kind of evidence can be used to support two different conclusions
B. cast doubt on a particular view about the average amount paid to German workers
C. suggest that business journalists may have a vested interest in perpetuating a particular view
D. identify one source of support for a view common among business managers
E. indicate a way in which a particular myth could be dispelled

[Reveal] Spoiler:
D

3. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about compensation?

A. A company’s labor costs are not affected by the efficiency of its work processes.
B. High labor rates are not necessarily inconsistent with the goals of companies that want to reduce costs
C. It is more difficult for managers to compare their companies’ labor rates with those of competitors than to compare labor costs.
D. A company whose labor rates are high is unlikely to have lower labor costs than other companies.
E. Managers often use information about competitors’ labor costs to calculate those companies’ labor rates.

[Reveal] Spoiler:
B

4. The author of the passage suggests which of the following about the advice that the consulting firms discussed in the passage customarily give to companies attempting to control costs?

A. It often fails to bring about the intended changes in companies’ compensation systems.
B. It has highly influenced views that predominate in prominent business journals.
C. It tends to result in decreased labor rates but increased labor costs.
D. It leads to changes in companies’ compensation practices that are less visible than changes to work processes would be.
E. It might be different if the consulting firms were less narrowly specialized.

[Reveal] Spoiler:
A

5. According to the passage, which of the following is true about changes to a company's compensation system?
A. They are often implemented in conjunction with a company's efforts to reconfigure its work processes.
B. They have been advocated by prominent business journals as the most direct way for a company to bring about changes in its labor costs.
C. They are more likely to result in an increase in labor costs than they are to bring about competitive advantages for the company.
D. They sometimes result in significant cost savings but are likely to create labor-relations problems for the company.
E. They may seem to managers to be relatively easy to implement compared with other kinds of changes managers might consider.

[Reveal] Spoiler:
E

[Reveal] Spoiler: Question #1 OA
[Reveal] Spoiler: Question #2 OA
[Reveal] Spoiler: Question #3 OA
[Reveal] Spoiler: Question #4 OA
[Reveal] Spoiler: Question #5 OA

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Last edited by Vyshak on 15 Sep 2016, 13:26, edited 5 times in total.
If you have any questions
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10 Jul 2008, 03:08
1 -A
2 -D
3 -B
4 -A
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10 Jul 2008, 20:32

I didn't get the approach. Can you help me out?
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11 Jul 2008, 00:27
Hi,
I mainly used process of elimination to solve these questions.
I am putting down my line of reasoning ...
Do tell me if it is correct.

1. The passage suggests that the “myth” mentioned in line 5 persists partly because
A. managers find it easier to compare their companies’ labor rates with those of competitors than to compare labor costs
B. managers tend to assume that labor rates affect their companies’ budgets less than they actually do
C. managers tend to believe that labor rates can have an impact on the efficiency of their companies’ work processes
D. the average amount paid to workers differs significantly from one country to another
E. many companies fail to rely on compensation consultants when making decisions about labor rates
The answer to this Q is clearly stated in the passage[line 21].

2. The author of the passage mentions business journals (line 39) primarily in order to

A. demonstrate how a particular kind of evidence can be used to support two different conclusions
B. cast doubt on a particular view about the average amount paid to German workers.
C. suggest that business journalists may have a vested interest in perpetuating a particular view
D. identify one source of support for a view common among business managers
E. indicate a way in which a particular myth could be dispelled

I used process of elimination to ans this Q.
Out of all the options option D seems to be most appropite cuz of the line
"so managers are more likely to find such advice from consultants palatable" [line 61].
This seems to be one of the reasons why business managers have started to beleive that its best to reduce labor rates.

3. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about compensation?

A. A company’s labor costs are not affected by the efficiency of its work processes.
B. High labor rates are not necessarily inconsistent with the goals of companies that want to reduce costs
C. It is more difficult for managers to compare their companies’ labor rates with those of competitors than to compare labor costs.
D. A company whose labor rates are high is unlikely to have lower labor costs than other companies.
E. Managers often use information about competitors’ labor costs to calculate those companies’ labor rates.

used process of elimination once again.
A. A company's labor costs are infact affected by the efficiency of its work processes.
B. This options seems to be correct because of what is stated in lines 14-20. The labors may be getting paid better however they are doing a better jb and hence providing more revenue to the company.
C. infact its the opposite.
D. lines 14-20 negates this fact.
E. no such information is stated in the passage.

4. The author of the passage suggests which of the following about the advice that the consulting firms discussed in the passage customarily give to companies attempting to control costs?

A. It often fails to bring about the intended changes in companies’ compensation systems.
B. It has highly influenced views that predominate in prominent business journals.
C. It tends to result in decreased labor rates but increased labor costs.
D. It leads to changes in companies’ compensation practices that are less visible than changes to work processes would be.
E. It might be different if the consulting firms were less narrowly specialized.

I wasnt sure what should be the Ans to this Q. I just went ahead wit my gut feeling .

OA time
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11 Jul 2008, 00:33
A
D ( not sure - could be C?)
A
D

This is the first readable passage (that is, it doesnt put you to sleep) I've come across in my GMAT journey:)
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12 Jul 2008, 01:34
MamtaKrishnia wrote:
1 -A
2 -D
3 -B
4 -A

Perfect. Those are OA.

You are correct. how much time you took for 3rd and fourth questions?
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12 Jul 2008, 02:19
Hi, do you have OE for #4. Also, what is the source of this passage?

Last edited by vksunder on 12 Jul 2008, 07:04, edited 3 times in total.
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12 Jul 2008, 05:51
priyankur_saha@ml.com wrote:
MamtaKrishnia wrote:
1 -A
2 -D
3 -B
4 -A

Perfect. Those are OA.

You are correct. how much time you took for 3rd and fourth questions?

Sorry, Don't rembr the amount of time i took for each Q. However for the entire passage i took some where between 10-15 mins.
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22 Jan 2013, 03:43
Can anyone explain the answer for #4... I went with C for this one...
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25 Jan 2013, 01:13
it is easy to read the passage but it take me a long time to answer the questions.
how to reduce the time for answering questions.
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Bumping for review and further discussion*.

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04 Jul 2014, 09:51
13min 3/4

I differ from OA of the last question.

Q.4 - OA - A
4. The author of the passage suggests which of the following about the advice that the consulting firms discussed in the passage customarily give to companies attempting to control costs?
A. It often fails to bring about the intended changes in companies’ compensation systems.

As per my understanding of the passage consulting firms are often successful in persuading managers to make changes in compensation system and
these changes lead to other types of problem. Therefore, consulting companies' intentions are meeting successfully to bring intended changes to create
more problems.

A is just telling opposite of what I inferred.
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05 Jul 2014, 01:24
very good qst 700+ I think
1 -A
2 -D
3 -B
4 -A
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06 Jul 2014, 04:53
4. The author of the passage suggests which of the following about the advice that the consulting firms discussed in the passage customarily give to companies attempting to control costs?

A. It often fails to bring about the intended changes in companies’ compensation systems.
B. It has highly influenced views that predominate in prominent business journals.
C. It tends to result in decreased labor rates but increased labor costs.
D. It leads to changes in companies’ compensation practices that are less visible than changes to work processes would be.
E. It might be different if the consulting firms were less narrowly specialized.

1 A 05:06
2 D 00:46
3 B 00:56
4 B 00:48
5 E 00:34 (numbering was different in the PDF from which I am studying)

Even I don't agree with the OA for above as (A).

CCI: Compensation consulting industry.

CCI recommended the change in compensation to the cos. and the cos. changed their compensation based on the advises.

However, CCI repeatedly gave advises to change compensation to maintain their future services.

So if I go by POE the closer answer should have been (B).
B. It has highly influenced views that predominate in prominent business journals.

CCI's views coincided with the views of "prominent business journals".

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09 Jul 2014, 00:45
TGC wrote:
4. The author of the passage suggests which of the following about the advice that the consulting firms discussed in the passage customarily give to companies attempting to control costs?

A. It often fails to bring about the intended changes in companies’ compensation systems.
B. It has highly influenced views that predominate in prominent business journals.
C. It tends to result in decreased labor rates but increased labor costs.
D. It leads to changes in companies’ compensation practices that are less visible than changes to work processes would be.
E. It might be different if the consulting firms were less narrowly specialized.

1 A 05:06
2 D 00:46
3 B 00:56
4 B 00:48
5 E 00:34 (numbering was different in the PDF from which I am studying)

Even I don't agree with the OA for above as (A).

CCI: Compensation consulting industry.

CCI recommended the change in compensation to the cos. and the cos. changed their compensation based on the advises.

However, CCI repeatedly gave advises to change compensation to maintain their future services.

So if I go by POE the closer answer should have been (B).
B. It has highly influenced views that predominate in prominent business journals.

CCI's views coincided with the views of "prominent business journals".

I was confused between A and B as well, but then i went through the latter part of the passage again and though was the whole point of CCI to relate with business mag? NO!
furthermore, the passage says
(line 46)
" some of these consulting
their practices beyond the area of
compensation"

so we cannot say that CCI highly influenced views that predominate in prominent business journals.

just my 2 cents
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07 Jan 2015, 06:23
PiyushK
Why can't we say that the journal has some sort of vested interest?
I am confused on this part
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10 Jan 2015, 22:59
A, D, B, A

WaterFlowsUp: it is mentioned that

Quote:
The myth that labor rates and labor
costs are equivalent is supported by
, who frequently
confound the two. For example, prominent
(40) the “high” cost of German labor, citing
as evidence the average amount paid
to German workers.

And... this can be linked back to the first sentence, where

Quote:
Many managers are influenced by

Therefore, it is evident that managers possess myths about pay and this myth is supported by 'business journals'.
Thus, the answer should be D: identify one source of support for a view common among business managers.

Hope that helps~! ^^
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17 Mar 2015, 01:25
A D B A Nice passage. Took 8 minutes.
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21 Jul 2016, 10:47
Interesting passage , A D B B E , got 4th incorrect , Time taken -10 mins and 30 seconds , 3 mins to read
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29 Jul 2016, 11:56
sayantanc2k mcelroytutoring

Can anyone help me with the tone of the passage here? Is it neutral or negative? I find it "neutral" as the author is concerned with highlighting a prevailing view among the business managers and citing reasons for its prevalence and widespread acceptance. On the other hand, I am a little confused with the usage of word "myth". It seems quite strong and looks like that the author is sad about the counterproductive decisions.

Thanks a lot for your unconditional support till date
Re: Many managers are influenced by dangerous myths about pay   [#permalink] 29 Jul 2016, 11:56

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